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Fiscal Multipliers and Financial Crises

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  • Miguel Faria-e-Castro

    (Federal Reserve Bank of St. Louis)

Abstract

I study the effects of the U.S. fiscal policy response to the Great Recession, accounting for both standard tools and financial sector interventions. A nonlinear model calibrated to the United States allows me to study the state-dependent effects of different fiscal policies. I combine the model with data on the fiscal policy response to find that the fall in consumption would have been one-third larger in the absence of that response, for a cumulative loss of 7.18%. Transfers and bank recapitalizations yielded the largest fiscal multipliers through new transmission channels that arise from linkages between household and bank balance sheets.

Suggested Citation

  • Miguel Faria-e-Castro, 2024. "Fiscal Multipliers and Financial Crises," The Review of Economics and Statistics, MIT Press, vol. 106(3), pages 728-747, May.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:3:p:728-747
    DOI: 10.1162/rest_a_01163
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